Platinum rallies in otherwise lackluster metals action

MikeMaynard

At the close, crude for September delivery traded at $28.15 a barrel on the New York Mercantile Exchange, up 25 cents.

The contract reached $28.45 a barrel early in the session. The year's previous high of $28.18 was seen in July.

October crude rose 32 cents to settle $27.51 a barrel. Also on Nymex, September unleaded gasoline rose 0.26 cent to 77.64 cents a gallon, while September heating oil tacked on 0.72 cent to 70.14 cents a gallon.

But September natural gas ended lower, in keeping with persistent weakness seen in the fuel's selling price lately. The contract slipped 6.5 cents to settle at $2.91 per million British thermal units.

In separate reports, the Energy Department and American Petroleum Institute said U.S. inventories of crude oil experienced larger-than-expected drawdowns in the week ended Aug. 9.

Crude stocks dropped 2.3 percent to 300 million barrels, equating to a reduction of 7.2 million barrels from the prior week, according to the Energy Department.

Late Tuesday, API said crude stocks fell nearly 9.5 million barrels on the week, to more than 295.6 million barrels.

The reports stirred renewed market speculation that the United States has been adding to the Strategic Petroleum Reserve, perhaps in anticipation of a military attack aimed at toppling Iraq's Saddam Hussein from power.

Plans have been afoot since last November to boost the amount of oil in storage as part of the nation's SPR, a complex of four underground salt domes in Louisiana and Texas with combined capacity for up to 700 million barrels.

The SPR's inventory stood at 580 million barrels, according to the Energy Department's most recent reading. The Bush administration has set a goal of filling the SPR to capacity by 2005.

A tightening in U.S. supplies also could be seen in the latest data for distillates, including heating oil, and for gasoline.

Weekly gasoline stocks dropped by nearly 3.9 million barrels and by 4.5 million barrels, respectively, according to the API and Energy Department data.

Both these were greater than the market consensus for gasoline, and distillates also fell, confounding market expectations for a weekly rise.

Puzzling development

It was crude, however, that garnered the lion's share of industry attention, with the API and Energy Department data carrying overtones for an upcoming meeting of the OPEC oil cartel.

The consensus view had been that U.S. crude inventories would drop by up to 3 million barrels on the week, so the magnitude of the reduction left analysts scratching their heads. UBS Warburg noted that the drawdown as reported by API was the largest since December 1999.

Fimat USA said the trading band for crude has effectively been bumped higher, to a range of $26 to $30 a barrel from $24 to $28 previously.

And market players now can begin to think of crude supplies as "tight" as opposed to "easy" -- a dividing line that IFR Pegasus said typically stands at 300 million barrels.

"The downtrend in stocks and rising price will certainly be of interest to OPEC and may help persuade them that a fourth-quarter production hike is needed," IFR Pegasus analyst Tim Evans said in a research note.

Merrill Lynch analyst Michael Rothman echoed this assessment, telling clients that a combination of higher global demand and a tightening of supplies "could produce an agreement to unwind a portion of last year's production cuts."

OPEC is scheduled to consider members' production quotas during a meeting set for Sept. 19 in Osaka, Japan.

Rothman also suggested the price of crude is "getting top-heavy on a shorter-term basis given OPEC and larger consuming nations' shared goal of fostering the global recovery."

What would war mean?

Traders speculated that lower Iraqi imports may have been a factor in the latest inventories data for crude. Iraq produces about 2 million barrels a day of crude for export, with much of this output consumed by the United States.

U.S. crude imports totaled a little more than 9.5 million barrels a day in the latest week, or about 2.2 percent lower than in the week ended Aug. 2, according to API.

The Energy Department pegged the average amount of net crude imports, including any supplies destined for the SPR, at slightly more than 9 million barrels for the four weeks ended Aug. 9, down 4.8 percent.

However, the Energy Department's data indicated there have been no imports dedicated for the SPR over the latest four-week average period.

Meanwhile, a Wall Street investment house weighed in with a forecast of what impact war with Iraq would have on crude prices.

"While oil prices might surge with the onset of renewed conflict, removing Saddam should free up additional oil production and lower prices, perhaps to the low-teens," said Bank of America Securities strategist Tom McManus.

Metals action

The rally in energy futures overshadowed trading in the Nymex metals pits, where prices turned mostly lower after a bullish start.

December gold lost $2.40 to settle at $313.50 an ounce, while September silver plummeted 12.2 cents to $4.458 an ounce.

The industrial metals followed suit, with September copper losing 0.65 cent to 67 cents a pound and September aluminum sinking 0.3 cent to 61.7 cents a pound.

On the upside, October platinum continued its bull run, rallying $8.60 to $560.20 an ounce, and September palladium settled at $325.50 an ounce, up $1 on the session.

The CRB/Bridge Index rose 0.42 to 215.87 late in the session. The index is a broad-based measure of the commodity futures market.

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